Vanguard International High Dividend Yield strikes a balance between stocks with high dividend yields and managing the associated risk. This results in a tilt toward larger, more stable firms that should offer some downside protection.

This fund tracks the FTSE All-World ex U.S. High Dividend Yield Index. It starts with large- and mid-cap stocks in the FTSE All-World ex U.S. Index, excluding REITs, and ranks them by their expected dividend yield over the next 12 months. The index selects those representing the higher-yielding half of eligible dividend-paying stocks. Focusing on dividend yield gives the portfolio a value orientation and can be a source of risk. High yields can stem from stocks with poor prospects and declining prices. Some of these firms may also pay out a high percentage of their earnings as dividends, reducing the portion that can be reinvested to grow their businesses.

Value traps, or stocks with deteriorating fundamentals and declining prices, pose a significant risk to dividend funds. But this strategy effectively bridles its exposure to risky companies. Sweeping half of the dividend-paying universe into its portfolio diversifies stock-specific risks, which limits the influence of distressed firms. Weighting constituents by their market cap also emphasizes larger, more stable firms that should have the capacity to continue making dividend payments. Market-cap-weighting further reduces the impact of value traps by reducing their weight as their prices fall.

Leaning toward large, profitable firms has aided the fund's performance. It has beat its Morningstar Category Index, the MSCI ACWI ex USA Value, by 84 basis points annualized from its launch in February 2016 through July 2023, while its volatility was slightly lower. The fund's low fee of 0.22% is among the cheapest in its category and should provide a durable long-term advantage.

Clarification (Sept. 7, 2023): While annual fees are cheap, buyers of this strategy's mutual fund share classes are subject to a 0.25% purchase fee intended to minimize the impact of transaction costs on the fund. This benefits current fundholders at the expense of new investors. The exchange-traded fund version of this strategy is not subject to the purchase fee.

Analyst Rating

An effective global approach to higher yield.

Director

Bryan Armour

National Energy Services Reunited

Shell PLC

Novan

Rogers

BHP Billiton

TotalEnergies SE

Royal Bank of Canada

ClearBridge American Energy MLP Fund, Inc.

Autoliv

Toronto-Dominion Bank

This fund's simple, repeatable approach effectively balances risk and reward. It provides exposure to dividend companies while limiting most of the negative side effects, warranting a Process rating of Above Average.

Above Average

Process

This well-supported team earns an Above Average People rating. The portfolio managers utilize Vanguard's global infrastructure and portfolio management technology as members of Vanguard’s equity index group.

The fund is comanaged by Michael Perre and Aaron Choi. Perre is a principal in the Vanguard equity index group. He has been with Vanguard since 1990 and has worked in various roles at Vanguard. Choi took over responsibility for this fund from Justin Hales in December 2021. Choi has served in an investment management role within Vanguard's equity index group since 2015 and has been with the firm since 2011.

Manager changes like this aren't unusual at Vanguard. Managers typically rotate to different funds every few years to improve their breadth and depth of expertise. These managers not only oversee each portfolio but also execute trades on a day-to-day basis. They also have access to Vanguard's global trading desks, enabling them to make the most cost-efficient transactions in various global markets.

Vanguard’s compensation structure aligns managers’ interests with investors’. The managers are compensated with a bonus that factors into the fund's ability to meet its objectives. This includes the managers’ record of tracking their benchmark index over the prior 12 months.

People

As The Vanguard Group settles on new senior leadership, it retains a High Parent rating.

Vanguard announced current CEO Tim Buckley will step down by the end of the year, marking an end to his 33 years at the firm. Historically, Vanguard has pronounced CEO retirements while simultaneously signaling who (from inside the firm) would take over. In this instance, Vanguard’s board said it will evaluate internal and external candidates in the coming months to find its next, and fifth, leader, though it also promoted CIO Greg Davis to president.

Vanguard flourished in several respects under Buckley’s leadership. Assets under management have grown by two thirds over his six years at the helm, while its asset-weighted average US fund fee ratcheted lower to 0.08% at the end of 2023. Vanguard further refined its advice business through its low-cost Digital Advisor platform and more holistic Vanguard Personal Advisor Services, and it debuted promising investment options.

Vanguard has had its share of challenges under Buckley, too. Growing its business outside the US has proved difficult, and ex US investors account for less than 10% of AUM. Between 2019 and 2023, Vanguard’s efforts to build its China business underwent dramatic shifts, with the firm ultimately abandoning plans to launch low-cost index funds there. It also ended a partnership with Ant Financial to provide advisory services to retail investors. Inside the US, customer service issues have continued to be a problem, and some of Vanguard’s newer offers, such as margin loans, seem a departure from a more-conservative approach to investing.

Vanguard retains an investor-friendly culture at its core that’s burnished by a commitment to low costs and supported by its unique mutual ownership structure and direct-to-investor playbook.

High

Parent

Vanguard International High Dividend Yield ETF

VYMI tracks a market-cap-weighted index of developed and emerging market firms (ex-US) that are expected to pay above average dividends over the next 12 months.

The fund tracks a market cap-weighted index of developed and emerging market firms (ex-US) that are expected to pay above average dividends over the next 12 months.

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The last 12 months have been difficult for equity income investors. The top 20% of dividend-paying stocks in the S&P 500 Index have returned 13.5% in the 12 months through March.

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Vanguard's 2023 Market Outlook predicts the outperformance of international equities, making international diversification important for portfolio performance if Vanguard turns out to be correct. Vanguard International High Dividend Yield ETF offers a high amount of international diversification, a solid dividend yield, and attractive valuation compared to peer funds. VYMI has multiple top strong holdings including Toyota Motor Corporation and Novartis that demonstrate strong growth and valuation qualities compared to the top holdings for similar ETFs.

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US stocks outperformed international stocks in Q1, with the S&P 500 returning close to 10% and the ex-US index returning near 5% through March 27. The Vanguard International High Dividend Yield Index Fund ETF kept pace with US large caps over the back half of the quarter, suggesting better relative strength. VYMI's technical situation has improved, with growing assets, low valuation, and positive momentum indicators, making it a strong value investment.

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Dividend growth investing allows for versatility in portfolio construction and strategies. Tax considerations, such as the difference between taxable accounts and IRAs, add complexity to investing decisions. I discuss my approach to dividend investing in my Roth IRA and taxable accounts, emphasizing long-term dividend growth in one and maximizing current and future income in the other.

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Foreign stocks, particularly those with solid yields, are relatively cheap compared to the S&P 500. The Vanguard International High Dividend Yield Index Fund ETF Shares offers low valuation and solid long-term growth trends. VYMI has a high dividend yield, low expense ratio, and impressive ETF grade, but its technical situation is mixed.

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While the stock market has recorded an incredible rally in 2023, topping all expectations, its journey in the second half has been rough.

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VYMI has underperformed its close peer VYM since inception. US stocks in general have grown earnings faster than international peers, even if they have also enjoyed some multiple expansion. VYMI's stock selection methodology is sound. Weighting higher dividend yield stocks by market-cap results in more of a blue chip fund than the high yield fund its name suggests. VYMI's basket of stocks trades at a suitably low valuation. It has a good shot of narrowing its underperformance versus VYM.

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The author argues that the combination of Schwab US Dividend Equity ETF, iShares Core High Dividend ETF, Vanguard International High Dividend Yield ETF, and Global X MLP & Energy Infrastructure ETF provides a solid foundation for a dividend portfolio. These ETFs offer diversification across sectors, geographies, yields, growth rates, and types of companies, while mostly avoiding yield traps and high-risk companies. The goal of this strategy is to maximize dividend income and growth, rather than outperforming the S&P 500 in total returns.

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News for Vanguard International High Dividend Yield ETF ETF (VYMI)